Production shift changes MLB free agency
On Dec. 8, 2011, the Los Angeles Angels signed Albert Pujols to a 10-year, $254 million contract. Pujols was baseball's premier hitter during the previous decade and an iconic star in St. Louis. He was a month from his 32nd birthday.
Pujols never batted below .300 until his last season with the Cardinals. This past season, at age 33, his average fell to .258.
As compensation for losing Pujols, the Cardinals were awarded the Angels' first-round pick, which they used to select Michael Wacha. Wacha enjoyed a remarkable rookie season in 2013, winning four games in the postseason. Wacha is just one of a number of young talents to impact the game in recent years.
Baseball's free agent market is changing because a shift in production from older to younger players. The impact found in free agency, which begins Tuesday, is decreasing. The supply of free agents is being drained by two factors: Players 30 and older are less productive than they were a decade ago, and clubs aggressively have signed young stars to extensions, controlling costs and delaying entry into free agency. While the game is enjoying record revenues, players' share of revenue has declined 20 percent since 2003.
The shift in production from older to younger players could level the field for small-market teams like the Pirates. The Pirates' sustainability plan relies upon drafting and developing talent and largely staying out of the free agent market, a blueprint similar to St. Louis'. The Cardinals' World Series roster contained only three players who were signed as free agents.
“I think the toughest thing facing all of us is the future of free agency,” Cardinals general manager John Mozeliak said, “and the limited resources that are going to be out there.”
Baseball is again a young man's game.
Players are not playing as long as they were a decade ago, nor are they enjoying as many peak-level performances into their 30s.
While the game is not pristine, the belief is baseball's performance-enhancing drug testing, which added punitive measures in 2004, has curtailed the use of PEDs. Performance enhancers were tied to extending careers and post-prime peaks. The game also has shifted more toward speed and athleticism and away from power.
From 1998-2003, players 30 and older combined for 42.9 percent of wins above replacement, a statistic that takes into account a player's total value. Their share of production fell to 33.3 percent from 2008-13, in line with production from the 1970s and 1980s, according to Tribune-Review research using the Baseball Reference Player Index tool.
The number of seasons worth five wins above replacement or more produced by players age 30 and older fell from 128 in 1998-2003 to 70 from 2008-13. Players 30 and older also combined for hundreds of fewer seasons played.
Former Texas Rangers and Cleveland Indians general manager John Hart said there is considerable risk in contracts given to aging players.
“You are going into dangerous waters when you are giving these 29-, 30-year-old guys (lucrative, long-term contracts),” Hart said. “The teams that get the most out of these guys are the guys that get them young. Get them in their 20s. You get them through the draft.”
Locking up talent
As Indians GM, Hart watched the small-market Pirates be dismantled in the early 1990s. Barry Bonds, Bobby Bonilla and Doug Drabek departed for bigger free agent contracts in larger markets. After losing in the 1992 NLCS, the Pirates did not return to the postseason for 21 years.
“I looked at what happened in Pittsburgh as a lot of the reason that we not only acquired good young players but ended up signing those players to long-term deals,” Hart said. “I saw what happened over there, and I was like, ‘A new wave of baseball is coming. We better be right on young players, and, No. 2, we better sign them.' ”
Hart began eroding the free agent pool with another strategy: signing young players to multiyear contracts, buying out arbitration years and in some cases free agency years. Under baseball's collective bargaining agreement, teams control a player for his first six years of service time. The practice helped the Indians earn six postseason berths from 1995-2001.
Since then, the practice has become an industry standard.
According to Tribune-Review research, 108 players on major league rosters this season had agreed to multiyear extensions before testing free agency, contracts that bought out at least one season of free agency. Those contracts bought out up to 306 free agent seasons, many of them prime years for players.
Said Mozeliak: “Teams are holding on to players. We've made it a point to try to retain our top talent.”
The Pirates signed star Andrew McCutchen to a six-year, $51 million dollar deal in 2012, buying out his first three seasons of free agency.
“We'd love to sign them all,” Pirates GM Neal Huntington said. “The challenge is this: Is the player willing to give up a little bit (of money) for security, and is the club willing to invest a whole lot of dollars when they don't need to?”
Player agent Scott Boras generally opposes the philosophy.
“My first question (to clients) is always, ‘Why is the team offering this to you? Isn't their evaluation the same as ours? We both think a lot of you,' ” Boras said. “The (contracts) represent discounts that may be more than what the contract is actually worth.
“So many of our clients don't take those early contracts. They are getting neutral advice.”
McCutchen's agent, Steve Hammond, said the contracts carry considerations other than dollars.
“When we've done the multiyear deals is when the players have really wanted to stay,” Hammond said. “You can always second-guess what we could have made. … I don't think it's healthy.”
An uneven split
Baseball's revenues soared from $1 billion in 1990 to $8 billion this year. Average salaries are at an all-time high, and players such as Mike Trout and Clayton Kershaw could receive record contracts in free agency.
But the players' share of revenue has decreased.
In 2003, players received 63 percent of revenue, the top mark in recent history according to the Sports Business Journal. Major league players' share of revenue declined throughout the decade, reaching 42 percent in 2012. For comparison, NFL, NHL and NBA have salary caps but guarantee players about 50 percent of revenues.
The declining share of revenue is a concern to Boras.
“You have owners' revenues that are skyrocketing. It's not 50-50 anymore. It's well below that,” Boras said. “I think the union has to take great notice of that. That's something we got away from in the last agreement. I think in the upcoming collective bargaining process that really has to be paid attention to.”
Raymond Sauer, a writer for The Sports Economist and an economics professor at Clemson, notes that a productivity shift from older to younger players means there are fewer “market wage” contracts and more “restricted, less-than-market-wage” deals.
Said Sauer: “(It's) a recipe for owner profits.”
The revenue divide among large- and small-market clubs never has been greater. Still, Sauer said the production shift from old to young, if it is sustained, can help small-market clubs.
Consider three teams among the lowest five payrolls this season — the Pirates, the Oakland A's and Tampa Bay Rays — advanced to the postseason. Since 2012, as many teams residing in the bottom half of payroll (10) have advanced to the playoffs as those in the top half.
“If we have a shift to the younger players in terms of production, that gives smaller-market teams a bit more of a chance,” Sauer said. “That's because the identification of young players is pretty random whereas everybody knows the (talented veterans), and large-market teams are willing to pay more for them in free agency.”
According to Baseball Prospectus, from 2003-12, teams paid $1.1 million per win above replacement to players 27 and younger compared to $4.4 million per win for older players.
In 2013, Pujols was nearly a replacement-level first baseman (0.7 WAR) making $16 million. Wacha earned the league minimum salary and was more productive, posting a 1.1 WAR in limited time. Never before has baseball's free agent market been more expensive and perhaps less productive.
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